Mark Hulbert’s Sentiment Readings Aren’t Encouraging for the Bulls

By on August 22, 2012

Mark HulbertMark Hulbert has been following the investment newsletter industry for decades. At Marketwatch he writes that the recent stock market downturn was not successful in discouraging the bulls.

Consider the average recommended stock market exposure among a subset of short-term stock market timers (as measured by the Hulbert Stock Newsletter Sentiment Index, or HSNSI). On Tuesday, when the Dow Jones Industrial Average rose above its early-May high on an intra-day basis but ended up closing well below it, this average stood at 53.1%.

On May 1, in contrast, the day on which the Dow closed at what so far has been its bull market high, the HSNSI stood at 42.1%. This 11-percentage-point difference is one measure of how much more optimism there is today than at the May market peak.

Hulbert points out that optimism is the enemy of contrarians and often means trouble for the stock market. He also writes that the opposite investor reaction occurred during last year’s stock market swoon, which was followed by a meaningful rally in stocks. It remains to be seen how the rest of this year unfolds, but Hulbert’s sentiment readings are not encouraging.

Hulbert was also negative on the market’s prospects in early July [link].

Source: Marketwatch

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